Coal Rush

Coal Rush!

With carbon caps on the horizon,
U.S. utilities are racing to build dozens of antiquated coal-fired power
plants.

For
all the talk about renewable energy, the extraction industry is alive and well
in the United States. In Texas, utility company TXU Energy has proposed
building 11 new coal-fired power plants. American Electric Power, of Columbus,
Ohio, is also seeking approval for several new coal plants. In the interior
West, Minnesota-based Xcel Energy is building one of the nation's largest coal
plants in Pueblo, Colorado, while planning for others in the next few years.

These are but a sampling of the
150-plus new coal-fired plants being proposed throughout the United States,
according to the Department of Energy's National Technology Laboratory. The
vast majority of them will use conventional coal burning technology. (Elsewhere
in the world, hundreds of new coal-fired plants are planned or under
construction, some 550 of them in China alone. See "China and Her Coal," p. 14.)
Of the 2004 U.S. total emissions of 5.9 billion metric tons of carbon dioxide
(CO2), electric power generation contributed 2.3 billion metric
tons, or 39 percent, and coal-fired plants accounted for 82 percent of that.
Because CO2 is the dominant human-caused greenhouse gas, that
unheralded feat makes power plants among the biggest culprits behind climate
change. And while power plant emissions of sulfur dioxide, nitrogen oxides, and
particulates have dipped since the early 1990s, thanks to federal legislation,
CO2 emissions continue unabated. In fact, coal is making a comeback.

For nearly three decades no new
U.S. coal plants came on line. But suddenly that's changed. "No question about
it, this is a coal rush," says Robert McIlvaine, a coal industry consultant in
Northfield, Illinois. "This is on par with the biggest expansion coal has ever
seen, assuming all the ones proposed are actually built," adds Travis Madsen, a
policy analyst with U.S. Public Interest Research Group (PIRG).

Nationwide support for coal dates
back several decades. Between 1950 and 1997 the coal industry received more
than US$70 billion in federal subsidies, or nearly $1.5 billion a year,
according to a 2006 report from PIRG. In the Energy Policy Act of 2005,
Congress approved an additional $7.8 billion for coal, including several
billion for a "clean coal" research and development program.

But what accounts for the current
feverish pace? Utilities point to all of us, our insatiable appetite for the
must-have gadgets of the modern world, such as laptops and iPods, as well as
plasma televisions, refrigerators, and other household appliances. And as the
population grows, that demand-absent any serious drive for higher
efficiency-will only head upward. "In the last decade our customer base has
gone up 20 percent, and the amount of electricity per household is up 10
percent," says Mark Stutz, a spokesman for Xcel, which generates 66 percent of
its kilowatthours of electricity from coal. "That's a lot of demand."

Coal is especially attractive now
because its prices are low and stable relative to those of natural gas, which
fluctuate unpredictably. But some critics of coal suspect that the current rush
has more to do with fear and greed. With the specter of climate change looming
ever larger in the public consciousness, utilities are anticipating that the
time will soon come when legislators will slap a limit on carbon emissions from
electric power generators and perhaps other industrial sources, and that the
more coal-fired capacity the producers build before that day of reckoning, the
higher their share of the total cap will be.

Of course, utilities have choices.
Some climate change is inevitable, and it will get worse before it gets better.
But utilities can still do plenty to stabilize and even reverse the course of
climate change by dramatically cutting back on carbon emissions and by
advancing solar, wind, and other renewable energy sources. "We're at a really
interesting fork in the road," says Jim White, a paleoclimatologist at the
University of Colorado in Boulder. "Do we recognize that continuing to burn
these fuels will cause a lot more problems than they solve, and therefore do we
promote alternative energy supplies? Or are we going to go down the road of
coal?"

Gambles

Many
utilities are hedging their bets by investing to some degree in renewables and
even nuclear power, and a few have even asked the federal government for
uniform, nationwide carbon restrictions now. But the industry in general is
choosing the coal road for the time being. Charlotte, North Carolina-based Duke
Energy, which generates 54 percent of its electricity from coal and 46 percent
from nuclear power, in September appealed to state utility regulators to
construct two coal-fired plants totaling 1,600 megawatts of generation
capacity. "Abandoning coal and moving to another source, such as natural gas,
is not a viable economic option for our company or its customers," James
Rogers, Duke Energy's chief executive officer, wrote in an article published in
July for the American Air & Waste Management Association. He said the
company's views on climate change "reflect the need to ensure a future role for
coal in our nation's electricity generation portfolio."

Ohio-based American Electric Power
is about as coal dependent as they come; its coal-fired plants account for 73
percent of its capacity. The company plans to build several new coal plants,
including some with cleaner-burning coal (called integrated gasification
combined cycle, or IGCC) technology that can be equipped to capture and
sequester carbon. "Coal is a domestic source and there's a vast amount of it
now," says Melissa Henry, a spokeswoman for American Electric, which owns units
in coal-rich West Virginia, as well as in Tennessee, Indiana, Kentucky, and
other states. She said the company's reliance on coal will likely continue at
the same level in the future, but that investments in IGCC and other "clean"
coal technologies will help mitigate the company's carbon footprint. "The
reality is that we will have to continue to use coal to generate electricity to
meet demand in the U.S.," she says.

Perhaps the most brazen example of
the current rush to coal is TXU Energy, which boasts it is planning "a
Texas-sized $10 billion investment" in 11 conventional coal-fired power plants
across Texas. Collectively, they would emit 78 million metric tons of CO2
per year, doubling the utility's emissions. Those 78 million tons are more than
the total 2001 emissions of 21 different U.S. states or many countries,
including Sweden, Denmark, and Portugal. While several utilities are
introducing cleaner, advanced technologies, TXU's proposed power plants are to
be pulverized coal-fired generators-old technology that is difficult and
expensive to retrofit later to capture carbon.

(In late summer, the company hit a
speed bump, however, when judges in Texas ruled that the proposed pollution
controls of one of TXU's proposed plants-a 1,720-megawatt generator-weren't
proven and that the plant's emissions could harm downwind cities. That ruling was
heralded by environmentalists as it suggests that utilities may be under
increasing scrutiny in their push to build more coal plants nationwide.)

TXU and other companies generally
point to steep natural gas prices and customers' rabid demand for more electricity
as the incentives for their coal plant buildup. But some analysts question
whether this strategy even makes sense economically, much less politically and
morally. "A lot of utilities are ignoring the whole issue. They're pretending
there's not going to be a climate policy," says Bruce Biewald, president of
Synapse Energy Economics, a research and policy organization in Cambridge,
Massachusetts. "We're saying, ‘get your heads out of the sand.' Your particular
decision, say, to build out fossil-fuel plants in Texas while pretending
there'll be no costs to carbon emissions is simply imprudent."

While there is no mandated
nationwide emission limit for carbon dioxide, thanks largely to the fact that
the Bush administration wouldn't ratify the Kyoto Protocol, several bills being
mulled in Washington call for a cap and various forms of carbon trading
programs to help reward cleaner emitters and punish the dirtier ones. In Europe
such a market, called the European Trading System, already exists, and California
and other individual states, as well as a group of northeastern states, are
already setting themselves up for a cap-and-trade system. In essence, such a
system could allocate to utilities and other emitters allowances based on their
emissions levels, or the caps could be auctioned, as many economists prefer.

Synapse estimates that if U.S.
companies had to comply now with the Kyoto Protocol the cost of emitting carbon
would be $20 to $50 a ton of carbon dioxide. (TXU's proposed new coal plants'
emissions, therefore, might cost the utility up to $3.9 billion every year if
it had to pay outright for them.) Biewald says companies that try to
"grandfather" in new coal plants so they can get free allowances are banking on
a "highly risky strategy." The key precedent in the United States that Biewald
and others point to is the successful sulfur dioxide cap-and-trade program
spurred by the 1990 Clean Air Act. It allocated allowances to polluters based
on their emissions levels from several years prior to the ruling. Another model
is the California Climate Registry, which allows utilities and other companies
to claim credit for acting early. The message is, do good now and you'll be
rewarded once a cap-and-trade system is in place. And one more risk factor to add
to the mix: U.S. electric power companies (and automakers, for that matter),
have not been forced to put a price on carbon emissions in part because CO2
is not legally defined as a pollutant. That may change if the U.S. Supreme
Court rules, in a case now before it,
that the Environmental Protection Agency must classify CO2 as a
criteria pollutant.

Energy Costs

Whatever
kind of emissions mandates the courts or politicians may impose, many utilities
(backed by Department of Energy incentives and research projects) are
developing "cleaner" coal burning technologies. The most conservative form
applies to conventional pulverized-coal plants-making them burn more
efficiently and creating higher steam temperatures and water pressures, for
instance. These are called "supercritical" and "ultra-supercritical" steam
boiler technologies. At best, such plants, intended to operate for at least 50
years, would make coal combustion at least 46 percent efficient, compared with
an average 30 percent efficiency rate of conventional pulverized plants. But
critics view these plants as a mere band-aid approach to carbon emission
reduction and, more important, a diversion from investing in much cleaner coal
technology and renewable energy sources. These plants would also require as
much water for cooling as conventional generators.

IGCC, mentioned above, is the least
polluting coal burning technology being developed today (see "Portraits in
Carbon, p.18). The advantages of IGCC over pulverized coal technology are that
it is more efficient (using less coal to produce each kilowatthour of
electricity), uses much less water, and emits much less SO2,
particulates, and mercury. Most important, carbon capture can be integrated
into an IGCC plant much more easily and cheaply than into a pulverized coal
plant. Jana Milford, a senior scientist with the U.S. NGO Environmental
Defense, says that IGCC combined with sequestration can cut CO2 emissions
by 90 percent compared with conventional plants.

Sequestration will not be cheap,
however. In fact, Environmental Defense, along with Western Resource Advocates
(WRA), another environmental research and policy organization, took the unusual
step last summer of publicly praising Xcel Energy for proposing the nation's
first IGCC plant designed from the beginning to capture and sequester carbon.
That is critical, because without capturing and sequestering carbon, IGCC
plants do little to reduce carbon emissions beyond their higher efficiency
(i.e., slightly lower kilograms of CO2 per kilowatthour produced).
(Xcel isn't off the hook, however. Some environmentalists continue opposing the
company's ongoing construction of a 750 megawatt supercritical pulverized coal
plant in Pueblo, Colorado, next to two existing facilities it operates there.)
Currently two other commercial-scale IGCC plants are operating in the United
States, one in Indiana and one in Florida, but neither entails capture and
sequestration. Several other companies, including Duke Energy, American
Electric Power, and TXU, have proposed IGCC plants, but they won't necessarily
incorporate capture and sequestration of carbon emissions either.

Utilities often cite the high
capital costs of IGCC plants. According to WRA, however, electricity produced
with current IGCC technology is estimated to be only 5 to 10 percent more
costly than that from a new pulverized coal plant if no carbon capture is
included. If carbon capture is considered across all plant types, electricity
generated with IGCC will cost 18-32 percent less than
pulverized coal technologies, WRA asserts. Retrofitting old-technology power
plants to capture carbon is extremely difficult because the entire flue-gas
stream must be processed to remove the CO2. With IGCC, the carbon
removal occurs early in the generation cycle and involves processing much lower
gas volumes.

Many environmentalists are
skeptical of IGCC and all other "clean" coal technologies. Perhaps the most
vocal and influential of them is former U.S. vice president Al Gore. "It is
time to recognize that the phrase ‘clean coal technology' is devoid of meaning
unless it means ‘zero carbon emissions' technology," he said in an address to
students at New York University in September. Others, like WRA energy project
director John Nielsen, argue that cleaner coal technologies will help some but
are not enough by themselves. "We're looking at emissions trajectories over
time still going up. They need to go down," says Nielsen. "But eventually we'll
need some federal limits on overall CO2 emissions to bring them
down."

True Prices

Whether
they dig in their heels or willingly leap forward, utilities will probably face
some kind of carbon constraints in the future. The sooner they clean up their
act, the lower their future costs will likely be. For many, even politicians,
the question is not should we put a price on carbon, but what kind of price,
and who pays.

In September the Congressional
Budget Office (CBO) published a report on the role of CO2 pricing.
The report notes that human activities are increasing the concentrations of CO2
and other greenhouse gases in the atmosphere and acknowledges that energy
markets fail to capture the "external effects" of emissions from fossil fuel
combustion, that is, the costs that are imposed on society by the use of fossil
fuels but are not reflected in the prices paid for them. Setting a price (i.e.,
tax) on carbon emissions would help change industry and consumer behavior, the
report says, suggesting that carbon emissions could be assigned prices by
taxing fossil fuels in proportion to their carbon content or by establishing a
cap-and-trade program. Under such a program, policymakers would set an overall
cap on emissions but leave it to carbon emitters to trade rights (called
allowances) to those capped emissions.

So far the carbon taxing approach
has gained little traction among politicians. Some call it political suicide to
even mention the word "tax." But cap-and-trade bills proposed by various
politicians are gaining momentum. The one that has enjoyed the most bipartisan
support in the U.S. Senate was introduced in mid-2005 by Jeff Bingaman, a
Democrat from New Mexico and a member of the Energy and Natural Resources
Committee. Bingaman's proposal called for a cap-and-trade system that would
require emitters to gradually stop the growth of their emissions by 2020 but
not actually reduce emissions from today's levels. Further, the legislation
would place an upper limit for pollution credits of $7 per metric ton of
emissions-a modest ceiling aimed at keeping polluters' costs relatively low and
predictable. By contrast, carbon credits in the European market, called the
European Trading System, have to date traded at substantially higher prices.
Some environmentalists have called Bingaman's proposal too soft on businesses.

Although utility executives have
been reluctant to publicly endorse any one piece of legislation, as noted above
some are increasingly showing support for some form of federally mandated cap
on carbon emissions. Executives from Exelon Corporation of Chicago, American
Electric Power, Duke Energy, General Electric, and PNM Resources all testified
last spring before the Energy and Natural Resources Committee that indeed they
want and are ready for carbon regulations. More recently, Xcel Energy chief
Richard Kelly voiced his desire for mandatory limits on carbon emissions.

Most utilities that do support
federal mandates want any caps to apply to all sectors across the economy
rather than just their own, and they prefer waiting for nationwide limits
rather than supporting or joining a patchwork of state or regional initiatives.
"We believe the science of climate change is real, and we recognize that our
industry, the electric sector, contributes roughly one-third of CO2
emissions in the U.S.," says Helen Howes, vice president of environmental
health and safety at Exelon. "But the transportation sector also is a big
producer."

As the power companies wait for
federal legislation (which few expect to pass before the 2008 elections), they
are keeping a close watch on the various state and regional carbon-trading
initiatives as well as the privately run and voluntary Chicago Climate
Exchange, which now has more than 100 members spanning many industries.
Although members' commitments to reduce their greenhouse gas emissions are not
enforced, members and industry analysts say the exchange will likely be a model
for any federal legislation. The biggest and most-watched regional carbon
trading system yet to be crafted is the Regional Greenhouse Gas Initiative. It
began in 2005 when seven northeastern states reached an agreement to cap carbon
dioxide emissions from their power plants at current levels and to cut those
emissions by 10 percent by 2019. The system is slated to go into effect in
2009. (Maryland has since joined the group as well.)

Meanwhile, California has taken the
lead among individual states on the climate change front. The state's
Democrat-controlled legislature and the Republican governor, Arnold
Schwarzenegger, agreed last August on sweeping legislation aimed at reducing CO2
emissions by 25 percent by 2020. Although this pledge doesn't meet the Kyoto
Protocol's mandate to cut carbon emissions to 7 percent below 1990 levels, it
is the strongest pledge yet by any state. Further, California has ruled that
its electricity distributors will not purchase power unless it meets the lowest
possible greenhouse gas emission standards. That ruling will force producers
outside the state to accommodate, or lose a huge chunk of their revenues.
Pacific Gas and Electric, one of California's regulated electric utilities,
already has phased out much of its fossil fuel sources. Forty-six percent of
the electricity it delivers to customers comes from fossil fuels, primarily
natural gas. Only 1 percent comes from coal, according to utility spokeswoman
Darlene Chiu.

Clearly, state and region-wide
efforts to cut carbon emissions are grabbing the attention of utilities and the
public alike. "What this means is that states are not willing to wait for the
Bush administration to catch on," says Dale Bryk, an attorney with the Natural
Resources Defense Council, which helped design the northeastern states'
program.

Ultimately, many scientists,
economists, environmentalists, legislators, and a growing number of utility
executives agree that a multi-pronged approach-technology, carbon markets, and
public policy-will be necessary to attack global warming. "A responsible
approach to solutions would avoid the mistake of trying to find a single magic
‘silver bullet'," Gore said in his NYU speech in September. The answer, he added,
quoting environmental writer Bill Mc­Kibben, lies in a "silver buckshot"
approach-an effective blend of several solutions.